Helen Conway explains why it is time for directors and CEOs to recognise that pay audits are the only way to truly advance pay equity in Australia.
Few would dispute the view that women and men in a company who are doing work of equal or comparable value to the same performance standard should receive the same total remuneration. Most business leaders would argue that this occurs in their organisations. And many directors and CEOs would be shocked to hear that when companies audit their pay data they almost always find instances where this is not the case, particularly when they conduct a pay equity audit for the first time.
How can this be so, why does it matter and what can boards and executives do to address the issue?
CEOs and directors who are tackling this issue will tell you unexplainable and unjustifiable like-for-like gender pay gaps exist because gender bias creeps into performance, talent development and pay decisions unless a rigorous data-based approach to core talent management processes is followed. While such pay gaps are not necessarily the result of conscious discrimination, they commonly expose a potential weakness in an organisation’s human resources infrastructure.
One way to test if this occurs in the organisations you govern is to ask your CEO to present an analysis of performance ratings by gender to the board or remuneration committee. Often men disproportionately receive higher performance ratings than women resulting in higher total remuneration. It is unlikely men are better performers than women overall, and it is more likely that various forms of gender bias are impacting such assessments. That is why leading companies recalibrate performance ratings after viewing data broken down by gender.
Gender bias can also creep into remuneration decisions outside the performance management process, for example, when employees take up a new job. Studies have shown women fear being viewed as aggressive when negotiating, so they tend not to negotiate as assertively or confidently as their male counterparts. To overcome gender pay gaps emerging at this point, leading companies have a policy of analysing the salaries of new starters, including existing employees moving in to new roles, to ensure they are not paying them too much or too little relative to their peers in the same job category.
The motherhood penalty
We also know that unconscious bias impacts female employees with children, with compelling research showing the “motherhood penalty” is a real phenomenon. This phenomenon means there is evidence of a decline in wage growth over time for Australian women when they return to work from parental leave. If this happens in an organisation, it may be a sign that women with children are being viewed as less committed to their careers and therefore are not given access to the same promotional and development opportunities as fathers and employees without children. Part-time workers — who are commonly women with caring responsibilities — often experience lower performance ratings than full-time employees and have access to fewer promotional and development opportunities.
In each organisation, the causes of gender pay gaps will vary, and the discovery of these gaps does not necessarily mean the organisation is consciously discriminating against women. However, they should be investigated to determine whether they are explainable and justifiable. Factors such as market rates, performance, experience, education, tenure and geography may help explain gender pay gaps. But the question of whether there is a justification for any gaps may highlight that bias or discrimination is present.
Why does eliminating gender bias in pay decisions matter? It is a moral and legal imperative, and importantly, it makes business sense. You are better placed to attract and retain talent, drive greater discretionary effort and achieve productivity gains if there is fairness in how you reward your employees. Transparently conducting pay equity audits and developing action plans to address any inequities establishes a commitment to fairness. It is also an excellent window into gender equality because it focuses attention on the nature of gender bias and requires intervention to correct imbalances.
Managing reputational risk and ensuring the policy settings are in place to drive organisational performance is a key responsibility of boards. Pay equity should be recognised as a critical lever to pull in this context.
Analysing the figures
So how do you know if a CEO or executive team has really come to grips with the importance of pay equity? Put simply, it is a numbers game: the only way an organisation can truly know if pay equity is an issue is through a gender pay gap analysis. In the same way that you would not accept verbal assurances about an organisation’s financial position in the absence of financial accounts, statements that an organisation is “paying people fairly” are questionable if the actual pay data has not been analysed. Directors have a role to play in ensuring the CEO and their executive team are making decisions, determining priorities and taking actions informed by facts, not assumptions. Signs that a CEO or members of the executive team do not appreciate the nuances of pay equity often come in the form of statements such as “we do not discriminate between women and men so we would not have any pay equity issues,” and “we do not need to do a gender pay gap analysis because we know we pay people fairly”.
These red flags should prompt the board to probe further to ensure that remuneration outcomes are being appropriately managed in a sustainable, non-discriminatory and evidence-based manner. While a growing number of directors and CEOs recognise the pay equity advantage, reporting to the Workplace Gender Equality Agency suggests the number is still very small. We need directors and CEOs to put pay equity on the agenda and recognise that it is only through pay equity audits and resulting action plans that we will advance pay equity.
10 questions for company directors to ask
- How often is a pay equity analysis done?
- What are the key findings and actions arising from the data analysis?
- What pay equity indicators are you able to report to the board?
- What are the findings of the annual performance review analysis by gender?
- How do our diversity and remuneration policies address pay equity?
- What is our pay equity strategy and action plan to address any pay equity issues?
- What progress has been made on addressing pay equity issues?
- What are the key barriers inhibiting progress on pay equity?
- How is the CEO held accountable for pay equity?
- What is the process for ongoing monitoring of pay equity in the company?
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